Managing Imports: From Docs to Docks
Technology and third-party providers can help streamline the importing process and speed cycle time while complying with increased regulatory requirements.
Companies that manage imports well can compress cycle times and squeeze costs out of their supply chains. Those that don't can be hit with penalties and fines. They can also suffer bottlenecks, or even complete disruption of their supply chains.
Managing imports is not a simple task. Importing a single shipment involves dozens of parties and complying with numerous requirements. The complex importing process is complicated further by the evolving requirements of the U.S. Bureau of Customs and Border Protection.
These requirements can have significant impact on a company's supply chain. Take the 24-Hour Rule, which requires advance manifesting of a U.S.-bound ocean container before it can be loaded at the originating dock. This new rule can add processing fees as well as days to a company's cycle time.
With multiple opportunities for delays, supply chain execution in today's fluid environment requires minimizing uncertainty through effective management and use of technology. It's no wonder that logistics and supply chain professionals are increasingly involved in international trade.
"We used to deal largely with compliance managers—now we deal with high-level logistics managers," notes Ted Iwaszkiw, vice president, Menlo Worldwide Trade Services, Middleburg Heights, Ohio.
"A huge portion of materials that businesses deal with today has to move across borders," says certified broker Stephen Gould, president of Gould and Associates Global Supply Chain Services, Beachwood, Ohio, and member of the adjunct faculty at Case Western University. "It's impossible to separate the physical cross-border movement of goods from the trade and customs issues associated with those movements."
For companies that import, "everyone from senior management on down has to understand the total supply chain to make sure they provide their customers with the ultimate solution at the lowest possible cost," notes Janet Reuter, director of import and export compliance for Rockwell Automation Inc., headquartered in Cleveland, Ohio.
That's not always the case, however, because many companies don't take an integrated approach to managing imports. "At some companies, customs people and logistics people do not communicate," Gould says. "Or, if they do, the communications are ineffective. As a result, the total picture tends to get lost, so companies may not have a true idea of what it really costs to move product across multiple borders through their supply chain."
Here's what you need to know to optimize imports and speed cycle time while complying with increased regulatory requirements.
Effectively managing imports, Gould says, requires understanding the three flows that are involved in the process:
1. Information flow. Managing imports depends on effectively managing information. "Logisticians must understand what data needs to move when and where in order to make international transactions happen effectively," says Gould. Information flow also involves understanding taxes, tariffs, and other elements of trade compliance, as well as security regulations.
2. Fiscal flow. "Financial transactions have become more and more complex," notes Shanna O'Brien, customs compliance director for Honeywell International Inc., Phoenix. "There's a lot of room to stumble, so you have to be very savvy."
Understanding fiscal flow means knowing who needs to be paid—including suppliers, customs and tax authorities, 3PLs, packers and others—as well as when and how they need to be paid.
"If you don't pay them at the right time, in the right way, your goods could be stopped. Or you could have supply chain interruptions leading to use of premium freight services or, worse, loss of customer relationships," Gould warns.
3. Physical flow. Understanding the physical movement of goods means accurately knowing how and where your goods will move, how they'll be handled, where they'll be stored, and the costs associated with this.
"Every time someone touches your goods—whether loading, unloading, or inspecting them—it adds costs and increases the likelihood of damage or pilferage," Gould says. In addition, make sure you know what condition your goods will be in from source to ultimate consumer (such as sitting on a dock awaiting inspection), so that you can ensure appropriate packaging.
Understanding the physical flow also means having a true picture of timing. "If you bring in goods from China via ocean freight, they may be locked in a box for 20-plus days and you can't touch them," Gould says. "If you haven't built into your planning the time when you can't touch your freight—whether it's on the water, in the belly of an airplane, or sitting in a customs warehouse—you may run into a situation where you don't have the goods you need."
Obeying the Rules
In addition to understanding the supply chain implications of international trade, importers also must keep abreast of evolving customs regulations. In the post-Sept. 11 world, "the customs administration is focused more on security than anything else," says George Weise, a former customs commissioner who is now vice president of global trade compliance for Vastera, a global trade management software company based in Dulles, Va.
Customs, renamed the U.S. Bureau of Customs and Border Protection (CBP), has been moved to the Department of Homeland Security. "Its principal mission and goal is to protect against terrorism and terrorist organizations, and secondly to protect the flow of legitimate trade," says Weise.
The foundation for CBP programs such as the 24-Hour Rule "is what Customs perceives as the threat that terrorists will infiltrate a legitimate cargo container and place in it a weapon of mass destruction," he says.
The threat is real; the means and methods of infiltrating containers exist today. As a result, Weise notes, "Customs is trying to push the perimeters of defense outward" to increase the likelihood that potential threats will be identified before they reach ports of entry.
Through its Customs-Trade Partnership Against Terrorism (C-TPAT) program, Customs is asking the business community to help secure the supply chain against terrorism by undertaking self-assessment, using C-TPAT security guidelines, and implementing a supply chain security program. Members of C-TPAT can expect fewer inspections and what Customs calls "an emphasis on self-policing," rather than on customs verifications.
While becoming C-TPAT certified may take weeks or months, depending on the size and complexity of a company and its imports, investing in certification is well worthwhile.
"Any company that regularly imports goods into the United States and is not participating in C-TPAT is making a big mistake," says Stephen Gould. Failure to become certified can result in missed delivery dates, use of costly premium transportation, and increased cycle times. If your organization doesn't have the time or resources required to become certified, Gould advises working with a third party, such as a customs lawyer or broker, to get it done.
Another key program is Custom's Cargo Security Initiative, under which U.S. Customs officials based in major ports around the world perform risk analysis of shipments before they're loaded. This process requires having advance information on material that is being sent, as dictated by the 24-Hour Advance Notification Rule.
Vessel operators are required to provide electronic manifest information to Customs, based on the information that's provided to them by the exporter or importer. In order to prepare the required documentation, carriers mandate that shippers provide them with documentation 24 to 72 hours beforehand.
While the requirement currently covers ocean freight only, depending on what happens in the rulemaking that is currently in the works, advance notification may be required for shipments traveling via other modes in the near future. As a result, Gould recommends re-evaluating your international transit times to ensure you have built in sufficient time.
Visibility is Key
To manage imports effectively, "the business community needs to have a better mechanism for managing information flow," Weise says. Even today, a significant amount of information flows via faxes and telephone.
"You need an automated system for information flow that uses a central database so that you can manage all the way through the supply chain," he says. "Technology can help you through this crisis."
"Visibility of intercontinental moves is a big issue," says Ed Feitzinger, vice president of Menlo Worldwide Technology, Redwood City, Calif. "The supplier may have one view of the data, the ocean carrier another view, and you have still another."
Different parties may have different order numbers and part numbers. Tying all the information together to present a unified view can improve security and customs compliance while optimizing operations.
"If you manage your information flow and supply chain from a security point of view, the long-range benefits will outweigh the short-term costs," Weise says. Improved processes and technological tools can "create efficiencies that allow for greater security and enhance the facilitation of legitimate trade."
Working with Suppliers
"The supply chain starts with the supplier," says Tom Craig, president, LTD Supply Chain, Glenmoore, Pa. Getting things right at the beginning of the supply chain can head off problems and eliminate delays.
For example, Rockwell's import/export unit is "trying to be more proactive, working with procurement when we see issues with particular suppliers," says Janet Reuter. Some suppliers may be constrained by systems that don't provide all the information required for documentation. In that case, Reuter's unit steps in to provide information where possible.
Other companies tap third parties with local representation to work with suppliers. "If they're not managed on the ground, you can have difficulties with suppliers," warns Craig. "They have multiple customers, and your status can rise and fall depending on the next set of purchase orders they receive."
Whatever the approach, working with suppliers will become even more important to importers, as it is a crucial part of the C-TPAT certification process.
Picking the Right Partner
Many importers look to third parties to help them facilitate the import process. Take Falcon Bay Sportswear LLC, which imports apparel—primarily men's wear—for its specialty retail customers. The company uses a third party to help make sure that merchandise is ready on time.
"We have to ship within a very small window every season," says Christine Needham, imports manager for the company, which is based in Huntingdon Valley, Pa.
"Everything is a matter of timing," Needham says, particularly for Falcon Bay's seasonal goods. So the company has its consolidator/broker, Seko Air, help manage the process. This includes optimizing transportation.
"When we get ready to ship, Seko attempts to consolidate the goods into a containerload, for example, checking to see whether two suppliers in the same country will be ready to ship within a few days," Needham says.
Counting on a Miracle
Third parties may be called upon to work miracles for their customers. Just ask Helmut Lange, president of HLLB LLC, a Minneapolis-based supplier of customized and specialty novelty items and apparel to stores and restaurants. Last year's port strike threatened to delay HLLB's shipment of Halloween items, which was stranded in the harbor.
"The ships were lined up for miles in Los Angeles, and efforts to get around it were failing for everyone," he recalls.
HLLB turned to its third party, UPS Supply Chain Solutions, for help. Rather than shipping the merchandise to its warehouse in Minneapolis, as traditionally done, UPS SCS redirected the shipment to its Los Angeles facility. There, the packages were sorted and relabeled, then shipped direct to 25 stores, just one day late.
The third party also helped HLLB meet demand for a test product when it was featured on NBC's Today show, managing an airfreight shipment of "Aunt Linda's Bottle Loves" from Shanghai and working with Customs to get the shipment cleared and on its way.
While selecting the right third party to provide logistics-related services is important in any situation, it is especially critical when the provider will handle elements of the import process.
"When you choose international providers, you need to do the necessary research," Gould notes. "Check out their financial stability, basic business practices, material handling practices and storage capabilities, reliability, relationships with Customs in the exporting company, effectiveness in filling out documents and in communicating with you, carriers, and Customs."
He advises setting up formal service level agreements with third parties, spelling out processes, procedures, roles and responsibilities as well as problem-solving and problem-prevention mechanisms.
"Select forwarders and brokers that will work on their own process improvement, and challenge you and your organization to do the same," Rockwell's Janet Reuter advises. Then measure their performance, such as evaluating how long it takes the freight forwarder to turn documents over to the customs broker, and how fast the broker clears shipments.
Provide effective oversight of your providers because working with third parties doesn't eliminate your responsibility. "About 10 years ago, Customs changed the rules of the game with the Customs Modernization Act," explains Shanna O'Brien. "This included the concept we now know as 'reasonable care.'
"Many companies have not recognized what 'reasonable care' has done in shifting responsibility to the importer," she says. "They still lean heavily on their broker, and may not recognize that they're ultimately liable if the broker makes a mistake." She advises that importers select and manage brokers carefully, and use the broker as a conduit of information rather than as the ultimate decision-maker.
Stephen Gould agrees. "Don't leave an understanding of import classifications and regulations to your broker. It's the logistics manager's responsibility to ensure effective flow of materials wherever they're going. Saying that it is the responsibility of your trade compliance people or customs broker is walking away from part of your job responsibility."
International trade skills are an important part of a logistics or supply chain manager's toolkit. "Logistics managers need to control the timing and cost of moving goods across the border," Gould says.
He urges logisticians to get smart about imports. "Take a course, crack a book, look at the U.S. Customs and Border Protection web site," which is full of resources on importing and customs regulations. In addition, trade service providers may offer online and in-person training.
CBP considers the establishment of import-related training programs to be a best practice of compliant companies. But the benefits are far greater than improved compliance. "When you have people who really know the rules, it is much easier for them to identify opportunities to save time and money," says Shanna O'Brien.
Honeywell takes a two-pronged approach to ensuring its staff has the necessary importing skills and knowledge. First is an online training program that includes modules on compliance topics such as recordkeeping, classification, and valuation.
Each module is offered live every quarter using a web-based presentation program, with new modules developed and presented as necessary. For example, a cross-functional team with representatives from import, export, contracts, and logistics are developing a module on Incoterms.
In addition, Honeywell holds an in-person conference for its import compliance specialists at least once a year, where trade attorneys and third parties such as Menlo Worldwide Trade Services deliver training that's more in-depth than can be offered through the online training program.
Rockwell Automation also takes a proactive approach to training. "We try to give the people who make business decisions information and tools they can use to make better decisions," explains Reuter.
The company started using a supply chain training team about one year ago. The team, which includes representatives from logistics, procurement, and business units, develops and presents modules on topics such as procurement, compliance, and inventory management.
Training Boosts Awareness
Participants in the training range from individuals in procurement and manufacturing to engineers who are moving operations offshore. Even individuals who work domestically can benefit from the training, as it can help them understand the international trade implications for suppliers that are manufacturing offshore, Reuter says.
Since the training began, Reuter has seen an increased awareness of the various aspects of importing. Business people consult with her unit and ask questions regarding duty rates, warehousing, and other components that go into strategic sourcing decisions. In addition, armed with a greater understanding of supply chain costs and cycle time, they're making more informed decisions.
Technology such as global trade tools can also provide the information needed to improve decision-making. Especially valuable are landed cost modules that help calculate total landed cost. When evaluating such tools, look for those that include factors such as time, inventory, transportation rates, duty, and accessorial charges.
While global trade management tools can help automate and facilitate the importing process, "don't assume that the tool will take care of everything," Gould says. "People tend to make major logistics changes, then forget about them. But duty and freight rates, economic conditions, and the values of currency change.
"You need to put in place a process to review international logistics decisions on a regular basis," he says.
Hitachi Turns to Teamwork To Speed in Parts
Hitachi Data Systems, headquartered in Santa Clara, Calif., imports products and spare parts from all over the globe, using Chicago as its main gateway.
"We bring in finished product, configure it at our distribution center in Indianapolis, and redistribute it to the customer," notes Sam Mikles, HDS's senior manager, logistics operations.
The logistics team works closely with their counterparts in the traffic department who specialize in imports and exports. "We work together to identify a method of importing product or spares into the country that meets our requirements and the obligations we have to our customers," Mikles says.
Communication between logistics and the import/export group is clear and open. "It's not enough to say we had a problem. We want to know what happened and why," he says. "We're quick to identify the root cause and put in preventive actions to keep it from happening again."
Compliance is a high priority at HDS. "We realize that it's imperative to comply with all customs rules and regulations to ensure there's no delay in receiving our imports," he says. On the spare parts side, for example, "we ensure that all regions that ship spares into the United States have the appropriate documentation and that everything is pre-alerted, so that our group can work to get the shipment of spares through customs," he says.
HDS primarily uses its own system to create most of the import/export documents. HDS also works in conjunction with its third-party provider, Choice Logistics, to ensure import/export compliance is maintained when handling spare parts throughout North America. Choice, which supports HDS's service parts logistics, also handles the company's Mexican imports and exports.
"Choice handles all the documentation required for Mexican government tax duties, maintains the files, works with the customs broker, alerts our internal U.S. customs group as to what's coming in, and provides paperwork," Mikles says.
When 'All-Inclusive' Isn't Necessarily the Case
Have you ever been uneasy about importing costs? Do you always feel confident that your broker has supplied you with enough information so you cover every cost associated with receiving items from overseas?
You have a right to be concerned. There are more than 10 different potential costs associated with importing goods via ocean into the United States and knowing them all is necessary for performing a proper cost/benefit analysis.
First, there are two distinct ways to quote an ocean shipment: All Water Service (AWS) and Mini Land Bridge (MLB).
An All Water Service quote is from the origin port to a port closest to the final destination. The primary benefit of AWS is that it tends to produce the lowest total transportation cost. The disadvantage of AWS is that transit time is longer than MLB by up to 10 days, depending on the final destination.
A Mini Land Bridge quote is from the origin port to the closest destination port. MLB offers the shortest total transit time because ocean transit time is minimized. The disadvantage is that total transportation cost is typically the higher of the two services.
Obviously, the method that best fits your needs will depend on the demand and price you and your customers are willing to pay.
The responsibility for the costs associated with importing goods will shift between buyer and seller depending on the Incoterms agreed upon for the transaction. It is essential for the buyer/importer of record to be knowledgeable about all the related terms used in the transaction.
An apparent "all-inclusive price" may not be all-inclusive at all. For instance, brokerage fees, merchandise processing fees, and harbor maintenance fees are likely not to be included in the quoted price. Be sure to ask whether or not these costs are included in the transportation quote.
Other fees that should be questioned and discussed are crane charges (for loading and unloading of containers, separate from loading/unloading fees), bunker surcharges (fuel surcharge), and document handling fees.
It is very easy to get overwhelmed by different fees that may apply to your import. Being well informed and asking your broker the right questions can prevent costly surprises.
Gary LaPoint is assistant professor of supply chain management at the Martin J. Whitman School of Management, Syracuse University; Meredith Bulkley is a supply chain major who graduated in May from Syracuse University.